A good portion of the results regarding the $25 billion bank settlement brokered last year have been compiled. Those results leave room for some doubt that the settlement provided homeowners with the debt relief option that many feel they deserved. Florida homeowners may or may not be surprised that the majority of the settlement funds went to second mortgages and short sales.
As a matter of fact, it appears that more than twice the amount of funds predicted went to cover losses on short sales. Representatives for the banks say that part of the reason for this is because many homeowners had already been denied a loan modification prior to the settlement. Still others may have decided on a short sale due to a life change such as a divorce or job change.
Still more billions of dollars went toward forgiving second mortgages. These are funds that banks would have lost in the foreclosure process since first mortgages take priority. Banks are saying that freeing up funds from second mortgages has given homeowners the opportunity to regain some equity in their homes and free up funds that may be used to pay a first mortgage. There are no numbers as of yet indicating if this is true or not.
As a debt relief option, many people believe that the money from the settlement should have been used on debt forgiveness on first mortgages. There was between 15 and 20 percent spent on first mortgages, but it is not clear how many homeowners in Florida benefited. Only time will tell whether the money from this settlement was spent wisely.
Source: Los Angeles Times, Mortgage relief didn’t help many keep their homes, critics say, E. Scott Reckard, Sept. 25, 2013